Weekly Natural Gas Storage Report - Time To Turn Bearish

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Includes: BOIL, DGAZ, KOLD, UGAZ, UNG, UNL
by: HFIR Energy
Summary

EIA reported a storage build of 106 Bcf for the week ending May 10. This compares to the +100 Bcf we projected and consensus average of +103 Bcf.

The +106 Bcf was higher than the five-year average of +89 Bcf, but in-line with last year's +106 Bcf.

For the week ending May 17, we have a storage build of 100 Bcf. November EOS is forecasted to be 3.70 Tcf.

We have now exited our UGAZ position for a gain of 7.55% as June's weather outlook is biased to the cold side.

Storage builds will be sizable in June with our estimate showing storage to end the month at 2.433 Tcf.

Welcome to the weekly natural gas storage report edition of Natural Gas Daily!

EIA reported a storage build of 106 Bcf for the week ending May 10. This compares to the +100 Bcf we projected and consensus average of +103 Bcf. The +106 Bcf was higher than the five-year average of +89 Bcf but in-line with last year's +106 Bcf.

Source: EIA

Next Week's Estimate

For the week ending May 17, we have a storage build of 100 Bcf. November EOS is forecasted to be 3.70 Tcf.

Trading Position

We exited out of our long UGAZ position today as the ECMWF-EPS long-range outlook continues to show a neutral to bearish set-up.

Time to Turn Bearish...

We wrote an article on April 30 that it was time to get ready to go long. Since then, we have closed our UGAZ position at a 7.55% gain as the June outlook continues to worsen with the latest update showing a colder than normal outlook.

In addition, historical analogs suggest the June outlook will be colder than normal in the demand regions, pushing CDDs lower and limiting power burn demand:

All of this combined with the fact that production continues to be much higher than demand results in sizable storage builds across June. We estimate that natural gas storage will finish June at 2.433 Tcf:

As you can see, this is not a bullish outlook for the bulls, and so the only way to offset the sizable builds this summer is if Mother Nature lends a supporting hand.

In addition, keep in mind that June 2018 was the second hottest June period since 2000, so power burn got a major uplift from the warmer than normal weather. This year? That's unlikely, so prices will have to be materially lower year-over-year to compensate for higher power burn.

Our take now is that it's time to turn bearish. Without the support of warmer weather, the outlook does not favor the bulls as the risk/reward is asymmetric for the bears. Prices will be capped from the need to keep prices low to boost power burn, while production will keep storage builds elevated.

We have now exited our UGAZ position and look for an entry in DGAZ in the coming weeks.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.